Q. Which of the following is most likely a characteristic of ‘low inflation’ (also known as creeping inflation)?

[A] It severely erodes the purchasing power of money and discourages savings.

[B] It is typically a sign of an economy in recession with falling prices.

[C] It is considered healthy for economic growth as it signals robust demand and encourages investment.

[D] It leads to capital flight as investors lose confidence in the currency.

Answer: C
Notes:

Explanation:

  • Low inflation, typically in the 2-3% range, is generally viewed as beneficial. It encourages consumption and investment by signaling that prices will gradually increase, making it less attractive to hoard cash. This provides a stable environment for businesses to plan and grow, and it allows the central bank flexibility to use monetary policy.
  • Options A and D describe the effects of high or hyperinflation.
  • Option B describes deflation or disinflation, not inflation.
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